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U of T should divest from fossil fuels

By Jeff Rubin

Tues., Sept. 8, 2015

For three generations my family has proudly attended the University of Toronto. My father, Leon Julius Rubin, graduated in 1945 with a PhD in chemical engineering and in recognition of a long career as one the country’s leading food scientists there is a scholarship in his name in the Department of Chemical Engineering. Three decades later, I graduated with a degree in economics, and my son Jack currently attends the school as an undergraduate specializing in environmental studies.

Like many of the school’s proud alumni I am also an annual contributor to the endowment fund that is the largest of any Canadian university. And like many contributors I am increasingly concerned about the fund’s investments in fossil fuels. As students prepare to return to the classroom, it’s time one of the world’s leading universities stepped up to the plate and sent a message that would resonate with public institutions around the world.

The University of Toronto has the largest endowment fund of any Canadian university. (Colin McConnell / Toronto Star)

More than 180 pension plans, foundations, charities and religious institutions have already made commitments to divest from fossil fuel companies. Only last year Stanford University announced that it would no longer hold coal stocks in its endowment fund. The University of Toronto needs to take this initiative one step further and divest not only from coal companies but from oil and natural gas producers as well.

A decision by the university to divest from fossil fuels would complement the recent decision by the Canadian Medical Association (CMA) to do likewise. The CMA move follows similar decisions by counterpart medical associations in both the United Kingdom and Australia aimed at alerting the public to mounting concern about health hazards posed by climate change.

The university has both a moral and fiduciary responsibility to act. On a moral level, divestment recognizes that climate change threatens many of the world’s principal bread baskets and billions of people who rely on agricultural activity of those regions for their food supply. Rising oceans threaten to inundate coastal areas where some 600 million people around the world live, fewer than 10 metres above sea level.

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At the same time the university has a fiduciary responsibility to manage its investments prudently. Many of the coal stocks jettisoned out of Stanford’s portfolio have lost most of their share value over the last three years. Investments in Canadian oilsands stocks, the source of some the highest cost oil in the world, have performed almost as badly. They have been one of the poorest performers in the entire TSX, having underperformed the country’s benchmark stock market index by over 40 per cent in the last year and having lost as a group over three quarters of their share value since the peak in oil prices back in 2008.

As of the disclosure statement of December 31, 2013 the University of Toronto’s Asset Management Corporation owned shares in a number of such companies including Canadian Natural Resources, Imperial Oil, Suncor, Exxon, Chevron, Encana and Teck Resources. All of these stocks will be negatively impacted by the emission-reducing measures that we must take if we heed the warnings of the world’s scientific community and avoid potentially disastrous outcomes from climate change.

In order to hold the increase in average global temperature to no more than two degrees Celsius the global economy will have to dramatically reduce combustion of fossil fuels in the very near future. The International Energy Agency estimates that world coal consumption will have to fall by more than 30 per over the next two decades and that world oil consumption will have to fall by almost 15 per cent from current levels.

The required cutbacks in future fossil fuel combustion renders anywhere from 60 to 80 per cent of the existing proven reserves of fossil fuels unburnable and hence with no economic value. Even more challenging for high cost sources of fuel supply like the oilsands is the prospect that not only will proven reserves not be developed but that existing production may have to be cut back.

Divesting from oil, coal and natural gas stocks isn’t just an urgent and necessary step to save our civilization from the worst consequences of climate change. It’s a logical investment strategy that immunizes the university’s endowment fund from the shrinking value of fossil fuels in any sustainable future.

Jeff Rubin, University of Toronto alumnus (1977), is former chief economist and chief strategist at CIBC World Markets and the author of The Carbon Bubble (Random House Canada).

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